Embrace FinTech or risk losing your competitive edge in today’s disruptive landscape

• A significant majority of Malaysian financial institutions (82%) see FinTech as a threat to their business, more than their Singaporean (73%) or global counterparts (67%)
• Customers are ready to embrace FinTech but only 42% of financial institutions think customers are vs 78% of FinTech companies
• Only 47% of Malaysian financial institutions say they have placed FinTech at the heart of their strategy (vs 60% of financial institutions globally)

KUALA LUMPUR, 25 November 2016 - Is FinTech a threat or an opportunity of a lifetime? That is the question on the minds of most Malaysian financial institutions (FIs). FinTech may well be a turning point in the history of Financial Services considering that 82% of Malaysian FIs perceive it as a threat to their business, compared to 73% of Singaporean FIs or even their global counterparts (67%).

Opportunity cost is a key concern. 22% of FIs believe that FinTech companies can potentially seize more than 20% of their revenues. This proportion is even higher among banking respondents (33%) as highlighted in ‘Catching the FinTech wave’, a survey report on FinTech developments in Malaysia by PwC Malaysia and the Asian Institute of Chartered Bankers (AICB).

Customers may be ready for FinTech. But are FIs ready to evolve?

To innovate and venture into unchartered territory in such volatile times, FIs need to consider what’s most important to their customers, whose trust is essential to the sustainability of their business.

Andrew Chan, PwC Malaysia Consulting Leader said:
“FinTech is more than just technology; it is about people and how they apply technology around their lives. To build a mobile banking app for instance, you need to consider what customers want, how they consume technology, their concerns around data privacy, how they are influenced by their peers, and other apps they may use for their financial needs.

“More than a digital strategy, FIs need a business strategy fit for the digital age. Having the right insights and using them to guide your decision-making can be a critical differentiator between a good business investment and a poor one.”

Statistics show that Malaysian consumers are open to adopting FinTech. For example, they are relatively new to the online market place. Only 56% of Malaysians reported buying online only within the last three years, according to PwC’s Total Retail 2016 survey (Southeast Asia report).

However, the growth in online shopping is strong. Today, 48% of Malaysian consumers shop online monthly or more frequently[1] and smartphone penetration in Malaysia is expected to exceed 100% by 2018[2]. There is a clear opportunity in areas like e-payment usage, where we currently trail behind markets like Singapore, South Korea and England.

Accordingly, the PwC-AICB study shows that a growing number of traditional FIs recognise the need to evolve. 59% of FIs say that they are currently dealing with FinTech companies either by engaging in joint partnerships, acquiring FinTech companies, setting up venture funds or start-up programmes, launching their own FinTech subsidiaries or rebranding purchased services.

However, while 49% of FIs see improved customer retention as an incentive to embrace FinTech, one must also consider the fact that only 42% think customers are ready for FinTech.

“We need to question whether the FIs’ own reservations about technology is a stumbling block, making it a challenge for them to innovate or earn the trust of their customers,” said Andrew.

Is there adequate support from company leadership?

59% of respondents say that they are unsure of or unlikely to respond to blockchain, the distributed ledger technology which at its most basic, allows the secure transfer of money directly between two parties, without intervention by a third party such as a bank or a credit card. 41% of Malaysian banking respondents say they are at best slightly familiar with blockchain. This is worrying considering the immense potential of this technology which could improve efficiency in back office and regulatory compliance processes.

Only 47% of Malaysian FIs agree or somewhat agree that their organisations have put FinTech at the heart of their strategy. This begs the question, is there a leadership push to acquire technological expertise within Malaysian FIs? Are Boards setting the right tone and sense of urgency about embracing the FinTech wave in order to remain relevant?

Transforming the industry through a strong talent pipeline

Prasad Padmanaban, AICB Chief Executive Officer said:
“FIs will need a new generation of people with the capabilities to drive innovation, commercialise ideas and derive meaningful insights from data. As the banking sector moves rapidly towards digitalisation, the demand for talent with the right skill sets to drive this becomes greater.

“Soft skills is an area that is particularly concerning. FinTech companies highlighted ‘differences in management and culture’ and ‘knowledge or skills’ as some of the key challenges they faced in dealing with FIs.

“On its part, AICB is fully committed to raise the professional standards in the banking industry in Malaysia and continues its efforts to ensure that the banking workforce is equipped with the requisite skills and competencies to meet the ever evolving banking sector. Besides the several professional qualifications the Institute offers, AICB collaborates with higher learning institutions on various initiatives to further build and strengthen the Malaysian banking talent pipeline.”

Putting the customer first and building fit for the future talents, are only a part of the equation. FIs need to be proactively involved in the transformation journey.

To drive the creation of a holistic FinTech ecosystem, FIs need to:

• Learn from every point of engagement with FinTech ecosystem players as varied as start-ups, tech companies, regulators and talents from non-financial services fields
• Look outwards and explore FinTech with a focus on finding new investments, products and partners (adjusting to new operating models focused on collaboration and partnership with FinTech players will be key)
• Integrate the innovation FinTech newcomers bring with your knowledge of the market and regulation, customer data and your position of trust with customers to create a unique customer experience

While prospects look bright for traditional players to differentiate themselves through FinTech, reduce costs and build customer loyalty, they will be hard pressed to find a one-size-fits-all strategy to embracing FinTech. What’s certain is that FinTech is a journey in resilience, one which requires patience, discipline and a commitment to realising long-term results, whether you are an industry veteran or a growing business. Put your customer needs ahead of your technical capabilities. The results will follow soon after.

[1]PwC’s Total Retail 2016 survey (Southeast Asia report)
[2]South East Asia and Oceania Ericsson Mobility Report, November 2015

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